text: Background This section provides an overview of 1) DOE’s administration of its advanced fossil energy R&D program, and 2) DOE’s Loan Guarantee Program (LGP). DOE’s Administration of Its Advanced Fossil Energy R&D Projects Within DOE, FE carries out DOE’s program for fossil energy R&D, which includes federal research, development, and demonstration efforts on advanced power generation; power plant efficiency; water management; and carbon capture and storage (CCS) technologies. CCS is a process that involves capturing man-made CO at its source and storing it permanently underground. The program for fossil energy R&D also includes the development of technological solutions for the development of U.S. unconventional oil and gas domestic resources, such as from shale formations. FE also oversees the operations, infrastructure, and R&D at NETL, among other things. NETL officials told us that NETL has dual roles: it serves as project manager for advanced fossil energy R&D projects that receive federal assistance, and, as a DOE national laboratory, it also conducts applied research. FE and NETL collaborate on the selection and administration of the awards for advanced fossil energy R&D projects, according to DOE officials. DOE’s efforts to administer its program for advanced fossil energy R&D take place across a spectrum of activities, including providing financial assistance for large demonstration projects. In the 1980s and early 1990s, DOE’s fossil energy R&D program primarily focused on reducing emissions of harmful pollutants from coal-fired power plants, particularly sulfur dioxide and nitrogen oxide. For example, DOE began its large demonstration projects of advanced coal technologies in the mid-1980s; this work focused on R&D to mitigate acid rain and to reduce the pollutants released from coal combustion. More recently, DOE has provided funding for advanced fossil energy R&D to reduce COemissions by developing beneficial uses for COfrom coal-fired power plants, and to improve methods for CCS, among other things. As we have previously reported, CCS is a key technology that shows potential for reducing CO Specifically, CCS technologies separate and capture CO from other gases produced when combusting or gasifying coal, compress it, then transport it to underground geologic formations such as saline aquifers—porous rock filled with brine—or oil and natural gas reservoirs, where the captured CO in large quantities: the Boundary Dam plant in Canada and the Petra Nova plant in Texas. Both plants retrofitted CCS technology to existing plants. A third fossil-fueled, electricity-generating operation, the Kemper County Energy Facility in Mississippi, was scheduled to begin CCS operations in 2016, but cost overruns and delays in construction and operations led to the suspension of the plant’s CCS component in June 2017. Each of these power plants using CCS systems may be described as a first-of-its-kind venture, using technologies developed at a pilot scale ramped up to commercial scale. It is not unusual for projects in the demonstration phase of the R&D process to experience higher-than-anticipated costs, delays, and other challenges, according to a 2017 Congressional Research Service report. DOE generally uses announcements of opportunities for federal financial assistance to competitively solicit potential applicants of advanced fossil energy R&D projects. According to DOE officials, the department sets priorities for its advanced fossil energy R&D funding each year based in part on the amount appropriated for FE R&D and on FE’s R&D plans, as well as any direction that Congress may have specified for certain types of technology R&D. DOE’s advanced fossil energy R&D projects typically lasted for multiple years. DOE sets milestones for technical progress for each year of a project to ensure that funding recipients accomplish a specific R&D objective or set of objectives, according to DOE officials. The recipient may submit some form of report on its progress on the R&D as well as accomplishments to DOE for review and approval to continue. DOE officials told us they review the progress of the recipient at each phase and the project continuation is subject to the recipient’s technical progress, the recipient’s compliance with all of the other terms—including any financial terms—of the agreement, and the availability of DOE’s funds, based on congressional appropriations. DOE’s Loan Guarantee Program The LGP was originally designed to address a fundamental impediment to innovative and advanced energy projects: securing enough affordable financing to survive the period between developing innovative technologies and commercializing them. As we have previously reported, these projects have risks, such as technology risk—the risk that the new technology will not perform as expected—and execution risk—the risk that the borrower or project will not perform as expected. Because the risks that commercial lenders must assume to support new technologies can put the cost of private financing out of reach, companies may not be able to commercialize innovative technologies without the federal government’s financial support. Federal loan guarantee programs such as the LGP can help companies obtain financing because the federal government agrees to reimburse the lender for the guaranteed amount if a borrower defaults. Section 1703 of EPAct authorizes DOE to provide loan guarantees for projects that avoid, reduce, or sequester air pollutants or man-made emissions of greenhouse gases and employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued. EPAct describes several categories of projects that are eligible for guarantees under the program, including, among others, renewable energy systems, efficient end-use energy technologies, advanced nuclear facilities, advanced fossil energy technology, and CCS technologies. DOE’s Loan Programs Office, which administers the LGP, had issued three loan guarantees under Section 1703 supporting nuclear technologies as of August 2018, but none supporting advanced fossil energy or any other technologies. DOE Provided $2.66 Billion in Funding for 794 Advanced Fossil Energy R&D Projects Started from Fiscal Years 2010 through 2017 DOE Provided $1.12 Billion in Funding for Nine Large Demonstration Projects Started from Fiscal Years 2010 through 2017 DOE provided $2.66 billion in funding for 794 advanced fossil energy R&D projects started from fiscal years 2010 through 2017. These 794 projects included 9 later-stage large demonstration projects and 785 other advanced fossil energy R&D projects. DOE provided $1.12 billion in funding to nine large projects aimed at demonstrating the commercial viability of CCS technologies. DOE provided $1.54 billion in funding to 785 other R&D projects for both coal and oil and gas technologies, mostly to universities and industry, located in 46 states and the District of Columbia. For nine large demonstration projects started from fiscal years 2010 through 2017, DOE provided $1.12 billion in funding. These projects received that funding from appropriations from the American Recovery and Reinvestment Act of 2009 (Recovery Act) and supported efforts to reduce the financial and technical risks of commercial CCS, according to a 2017 report by the Congressional Research Service. Six demonstration projects researched CCS technologies using coal, while three used other fuels, namely methane, ethanol, and petcoke. Recipients were generally required to provide a certain percentage of the cost of each R&D project, called cost share. Specifically, to receive funding, recipients of funding for the nine large demonstration projects agreed to pay at least $610 million in cost share for the demonstration projects. Three of those demonstration projects remained active at the end of fiscal year 2017. Four projects had their support withdrawn by DOE, and two were withdrawn by the recipient. These projects ended due to several factors such as a lack of technical progress, the closure of the Recovery Act appropriations account on September 30, 2015, and changing economic conditions—such as decreased natural gas prices which resulted in changes in the relative prices of coal and natural gas. The nine large demonstration projects represented over 40 percent of the $2.66 billion in advanced fossil energy R&D funding for the 794 projects (see fig. 1). Of the $1.12 billion in funding for the advanced fossil energy demonstration projects, DOE provided $616 million in funding for three large demonstration projects that started in fiscal year 2010 and that remained active as of the end of fiscal year 2017. Petra Nova Parish Holdings of Texas has a demonstration project underway that has retrofitted an existing coal-fired power plant in Texas with post-combustion carbon capture technology, according to DOE documentation. The objective of this project is to demonstrate the ability to capture 90 percent of the CO According to DOE documentation, DOE’s involvement with the project is scheduled to conclude in December 2019. The Petra Nova project captured and stored its first 1 million metric tons of CO in November 2017, according to DOE officials. Archer Daniel Midlands of Illinois had a demonstration project underway to capture CO per year using dehydration and compression processes and sequester it in the Mt. Simon Sandstone formation (a saline reservoir) in Illinois. DOE provided $141 million in funding for the project from fiscal years 2010 through 2017. DOE’s involvement with the project is scheduled to conclude in September 2019, according to DOE documentation. During calendar year 2017, the project captured and stored over 500,000 metric tons of CO emitted from two large steam-methane reformers, which produce hydrogen from methane, for its demonstration project in Texas. The captured gas is compressed and sent via pipeline to oil fields in eastern Texas to be used for enhanced oil recovery and thereby sequestered, according to DOE documentation. DOE provided $284 million in funding for the project from fiscal years 2010 through 2017. DOE’s involvement under this demonstration project’s award concluded the last day of fiscal year 2017. DOE Provided $1.54 Billion in Funding for 785 Other R&D Projects Started from Fiscal Years 2010 through 2017 to Support Advanced Fossil Energy DOE provided $1.54 billion in funding for 785 other advanced fossil energy R&D projects started from fiscal year 2010 through 2017. For these 785 R&D projects, DOE provided: on average, $2.0 million per project; a median of $0.8 million per project; less than $5 million to 91.8 percent (721) of the 785 projects; and less than $1 million to 58.1 percent (456) of the projects. For projects started from fiscal years 2010 through 2017, total funding for projects by fiscal year started ranged from less than $100 million to more than $300 million (see fig. 2). As noted earlier, recipients of DOE’s R&D funding were generally required to provide cost share to support the cost of each R&D project. For 661 of the 785 projects, the initially agreed-upon dollar amount to be covered by recipients was $617 million in cost-share. Recipients did not provide a cost-share for the remaining 124 of the 785 projects, which were predominantly grants without cost share requirements, according to DOE officials. According to DOE data, DOE provided the largest amount of funding for projects started in 2010 because DOE received a supplemental appropriation for fossil energy R&D through the Recovery Act. DOE provided funding for 72 of the coal technologies research projects— totaling $237 million—using appropriations from the Recovery Act, according to DOE data. Of the 785 R&D projects for which DOE provided funding, most advanced fossil energy projects researched coal technologies rather than oil and gas, and recipients of the funding were generally universities and industry groups that were distributed across the country. Most of DOE’s 785 Advanced Fossil Energy Projects Researched Coal Technologies Of the 785 projects, 698 (about 89 percent) involved coal technologies, receiving $1.40 billion (about 91 percent) of the $1.54 billion in funding DOE provided for the projects. The remaining projects and funding supported R&D for oil and gas technologies, according to DOE’s categorization of the projects by fuel type (see table 1). Within each fuel type, projects researched various technology types, such as R&D on coal gasification systems and the mitigation of methane emissions from natural gas infrastructure. The funding for the 785 R&D projects ranged from $5,000 for a research conference (oil and gas) to $125 million for a research facility focused on next-generation CCS technologies (coal). so that it does not change phases, but rather undergoes drastic density changes over small ranges of temperature and pressure. Such cycles have shown the potential for increased heat-to- electricity conversion efficiencies, high power density, and simplicity of operation compared to existing steam-based power cycles. $5,000 for a research conference to $29 million for the University of Texas at Austin’s active project on the deep-water characterization and scientific assessment of gas hydrates. Specifically, DOE identified the following four categories as oil and gas-related research areas: Gas Hydrates: The development of technologies to find, characterize, and recover methane from gas hydrates through field testing, numerical simulation, and laboratory experimentation, among other things. For example, DOE provided the University of California-San Diego $350,000 in funding for a 3-year active project to characterize the baselines and changes in gas hydrate systems. Natural Gas Infrastructure: The monitoring of the U.S. natural gas pipeline network, which includes more than 300,000 miles of interstate and intrastate transmission pipelines. For example, DOE provided the University of Pittsburgh $1.2 million in funding for a 3-year active project on multi-functional fiber sensors for pipeline monitoring and methane detections. Onshore Unconventional Resources: The production of hydrocarbons―primarily natural gas―from shale formations. For example, DOE provided the Ground Water Protection Council, of Oklahoma, $13 million for an 8-year project for data management and regulatory approaches related to hydraulic fracturing and geologic sequestration of CO The R&D projects in this area included research on geologic uncertainty prediction of oil and gas, and improvement of subsea systems reliability through automation and advanced technology. Recipients Were Generally Universities and Industry Groups That Were Distributed Across the Country The recipients of the funding for the 785 advanced fossil energy R&D projects were mostly universities and industry groups that were located in 47 states and the District of Columbia. Of these recipients, approximately 51 percent were universities; 43 percent were industry groups; and 5 percent were other entities, including other federal agencies, such as the U.S. Geological Survey (see table 2). While university recipients received funding for a majority of projects, industry recipients received a majority of the funding (see table 3). Recipients were located in 47 states and the District of Columbia. The three states with the highest number of projects with recipients located in their states were Texas (100), California (61), and Ohio (53). The three states where recipients received the most funding were Texas (about $169 million), Alabama (about $161 million), and California (about $152 million) (see fig. 3). DOE Made No Loan Guarantees for Advanced Fossil Energy from Fiscal Year 2006 through August 2018 Although DOE issued three solicitations for applications for advanced fossil energy loan guarantees—most recently in fiscal year 2014, for up to $8 billion in loan guarantees—DOE had not guaranteed any loans for advanced fossil energy as of August 2018. Specifically, the 2006 and 2008 advanced fossil energy solicitations were for projects that involved coal-based power generation and that would incorporate CCS, coal gasification, or other beneficial uses of carbon, among other things. However, neither solicitation resulted in any loan guarantees, in part because during this timeframe of the late 2000s, natural gas prices fell, causing a shift in the market, which led to such coal-related projects no longer being economically competitive, according to DOE officials. According to the fiscal year 2014 solicitation, applicants could use any fossil fuel—including coal, oil, or natural gas—that would reduce, avoid, or sequester greenhouse gases. In response to the 2014 advanced fossil energy solicitation, DOE officials told us that DOE had received 19 applications total. According to DOE officials: Five fossil energy applicants were actively moving through the process of review as of August 2018. For example, in January 2018, one applicant issued a press release stating that it was pursuing a $1.9 billion loan guarantee to support the development of infrastructure for a proposed underground storage facility for natural gas liquids and intermediates. Nine fossil energy applicants had been idle or not following up with the Loan Programs Office. Three applicants did not meet certain eligibility requirements. Two companies withdrew their applications—one in 2014, and one in 2018. Of the five advanced fossil energy applicants actively in the process of DOE review, DOE offered a conditional commitment to guarantee up to $2 billion in loans to one applicant—Lake Charles Methanol—in December 2016. As we have previously reported, a conditional commitment is one where DOE commits to issue a loan guarantee if the applicant satisfies specific requirements. According to information on the DOE website, the Lake Charles Methanol plant in Louisiana would produce methanol from the gasification of petcoke, and capture and transport the CO to Texas for enhanced oil recovery. According to DOE documentation, the Lake Charles project planned to leverage the work and experience gained from the earlier DOE demonstration project by Leucadia Energy. Agency Comments We provided a draft of this report to DOE for review and comment. DOE provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology In this report, we describe 1) the Department of Energy’s (DOE) funding of advanced fossil energy research and development (R&D) projects started from fiscal years 2010 through 2017 and the types of projects and recipients that received funding, and 2) DOE’s loan guarantees, if any, for advanced fossil energy projects from fiscal year 2006 through August 2018. You asked us to review DOE’s funding for advanced fossil energy projects. To address the first objective, we reviewed relevant laws, regulations, and DOE guidance. We analyzed DOE advanced fossil energy R&D project data for fiscal years 2010 through 2017. We focused our review on advanced fossil energy R&D projects that received funding through the Office of Fossil Energy’s (FE) National Energy Technology Laboratory (NETL) because the 794 projects represent all of the advanced fossil energy R&D projects in our scope started from fiscal years 2010 through 2017. We used fiscal year 2010 as the start date because DOE officials told us that DOE’s current data management system came into use for the R&D projects that started in fiscal year 2010. We used fiscal year 2017 as the end date because that was the most recent complete year for which data were available. DOE provided us with a spreadsheet that included key project information—such as the name of the recipient of the R&D funding and the project start date—as well as obligations data for each project started for the period of our review (fiscal years 2010 through 2017), by the fiscal year during which the project was started, by summing the obligations for the project from each year. We reported on DOE’s funding for these R&D projects; DOE generally provided financial assistance for these projects through grants or cooperative agreements. In addition, NETL’s in-house R&D work was outside of the scope of our review. To assess the reliability of the funding data, as well as the specific project information for the 794 R&D projects, we interviewed data specialists at DOE Headquarters, FE, and NETL and reviewed DOE internal guidance for the maintenance of agency data. We found the data to be sufficiently reliable for our purposes. We also reviewed DOE websites and documentation, including fact sheets, and interviewed officials from FE and NETL. To characterize the kinds of groups that received advanced fossil energy R&D funding, we developed the following definitions for coding each recipient: University: any institution of higher education, such as a public or non-profit private college, junior college, or university. Federal financial assistance means assistance that non-federal entities receive or administer in the form of grants, property, cooperative agreements, food commodities, direct appropriations, or other assistance, and can also include loans, loan guarantees, interest subsidies, and insurance, depending on the context, but does not include amounts received as reimbursement for services rendered to individuals in accordance with OMB- issued guidance. 2 C.F.R. § 200.40. See also 31 U.S.C. § 7501(5). A grant agreement is generally defined as a legal instrument of financial assistance between a federal awarding agency and a non-federal entity that is used to enter into a relationship the principal purpose of which is to transfer anything of value from the federal awarding agency to the non-federal entity to carry out a public purpose authorized by law, and not to acquire property or services for the federal awarding agency’s direct benefit or use. 2 C.F.R. § 200.51. A cooperative agreement is distinguished from a grant in that it provides for substantial involvement between the federal awarding agency and the non-federal entity in carrying out the activity contemplated by the federal award. 2 C.F.R. § 200.24. For purposes of our report, we use the term awards to refer to both grants and cooperative agreements. organized primarily for profit. Industry includes some organizations that were founded as non-profit corporations but call themselves “companies” and/or describe “serving clients.” Other: any entity not associated with a university or industry. Other includes groups such as other federal government agencies, as well as non-profit corporations and other entities which we could not identify conclusively as either industry or universities. We used these three categories, and their definitions, to guide us in the coding process. After developing these definitions, three analysts independently coded each recipient as a university, industry, or other. Our method was to examine the identifying information on each recipient’s website and decide which category best described the entity. We also had an independent analyst check the coding category that we had assigned to each recipient and verify that we had made a reasonable coding decision. To describe the status of DOE’s advanced fossil energy loan guarantees, we reviewed relevant laws, regulations, and guidance, as well as past GAO reports describing DOE’s administration of the loan program. We also reviewed summary information that DOE provided on applications for loan guarantees for advanced fossil energy projects. We analyzed information that DOE provided on applications for loan guarantees for advanced fossil energy projects under the Loan Guarantee Program (LGP) and other related information for fiscal year 2006 through August 2018. We used fiscal year 2006 as the start date because it was the first year that DOE issued an advanced fossil energy project solicitation—an announcement of opportunities for loan guarantees for advanced fossil energy projects—and we used August 2018 as the end date in order to provide the most up-to-date information as possible. We also reviewed the advanced fossil energy project solicitations DOE issued during this timeframe. To assess the reliability of the summary information, we interviewed LGP staff who maintain the information for the advanced fossil energy applications, and reviewed DOE documentation. We found the data to be sufficiently reliable for our purposes. In addition, we interviewed officials from the Loan Programs Office who work on the LGP. We conducted this performance audit from March 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, Karla Springer (Assistant Director), Rebecca Makar (Analyst-in-Charge), TC Corless, Cindy Gilbert, Carol Henn, Kirk Menard, Patricia Moye, Sheryl Stein, and Sara Sullivan made key contributions to this report. Also contributing to this report were Carolyn Blocker, Marcia Carlsen, Nirmal Chaudhary, Jaci Evans, Ryan Gottschall, Keesha Luebke, and John Yee.
target: One aspect of DOE's mission is to secure U.S. leadership in energy technologies. To that end, DOE funds R&D for energy projects, including for advanced fossil energy (innovative technologies for coal, natural gas, and oil). DOE provides funding for R&D projects, including large projects designed to demonstrate the commercial viability of technologies. Also, DOE is authorized to make loan guarantees to support certain energy projects through its Loan Guarantee Program, which is administered by its Loan Programs Office. GAO was asked to review DOE's funding for advanced fossil energy projects. This report describes DOE's funding for advanced fossil energy R&D projects started from fiscal years 2010 through 2017 and the types of projects and recipients that received funding, among other objectives. For purposes of this report, GAO used the term funding to mean obligations. GAO analyzed relevant laws, regulations, and guidance; DOE data on R&D funding for fiscal years 2010 through 2017; and DOE documents. GAO also interviewed DOE officials in the Office of Fossil Energy, the National Energy Technology Laboratory, and the Loan Programs Office. The Department of Energy (DOE) provided $2.66 billion in funding, or obligations, for 794 research and development (R&D) projects started from fiscal years 2010 through 2017 to develop advanced fossil energy technologies. Such technologies include processes for converting coal into synthesis gas composed primarily of carbon monoxide and hydrogen, and recovering methane from gas hydrates. Of the $2.66 billion, DOE provided $1.12 billion in funding for 9 later-stage, large demonstration projects, which were to assess the readiness for commercial viability of carbon capture and storage (CCS) technologies. CCS involves capturing man-made carbon dioxide at its source and storing it permanently underground. DOE provided the remaining $1.54 billion in funding for 785 other projects in amounts that were relatively small—over half were for less than $1 million. Six demonstration projects researched CCS technologies using coal, while three used other fuels. The nine demonstration projects received funding ranging from $13 million to $284 million. As shown in the figure, three projects implementing CCS technologies were active as of the end of fiscal year 2017. Also, DOE withdrew its support for four projects, and two projects were withdrawn by the recipients—all before completion. These projects did not reach completion due to several factors, such as a lack of technical progress, or changes in the relative prices of coal and natural gas that made the projects economically unviable. Of the 785 other projects, about 89 percent involved R&D of coal technologies, such as coal gasification—the conversion of carbon-containing material into synthesis gas. The other 11 percent of the 785 projects involved R&D of oil and gas technologies, such as the development of technologies to find, characterize, and recover methane from gas hydrates.